I have been saying and writing for quite a while to stay away from the financials, including insurance. The reason is that (like kids diving into a murky pond for the first time), when it comes to the financials stocks we have no idea how deep the water is is or where the stumps are.

The stock index futures are down horribly this morning before the stock market’s open. The market will be slaughtered today, and the slaughter may last for much of the week.

Lehman Bros. (LEH) is gone, headed for bankruptcy. As an attorney, I understand this. Why make a deal to buy it now, when you can buy it out of bankruptcy court much cheaper and hose all the shareholders?

Bank of America is buying Merrill, Lynch. AIG, the insurance giant so beloved by Warren Buffett, is in deep doo. What do you think now of these hot-shot managers of the big financials, these smart guys with MBAs from Harvard and Wharton?

For all of you who wonder about my claims that ordinary people can - with covered calls - outperform the big boys, remember that the “big boys’” principal skill is pocketing fees, not making money. As Peter Lynch (a truly great money manager) once said, the average Joe who pays attention can achieve investment returns that beat 95% of the professional managers.

What to do today?

First of all, don’t freak out. The market is coming down hard today, as another financial shoe drops. Be prepared to close short calls as the stock falls, since it is likely that most stocks will be hammered today. Rolling the calls down may not be the best option, since the market is likely to snap back after it absorbs the newest financials fiasco.

If you are a down-day call writer, today may not be the day to write! The market could sell off for several days.

This entry was posted on Monday, September 15th, 2008 at 7:29 am and is filed under Covered Calls, Markets/Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.